HL Deb 11 February 1964 vol 255 cc480-91

3.0 p.m.

Order of the Day for the Second Reading read.


My Lords, I beg to move that this Bill be read a second time. I do not think your Lordships will find this either a very controversial or a very difficult Bill. I do not propose to keep you long in explaining it. The Bill amends the statutory authorities under which the Export Credits Guarantee Department conducts its operations. The principal Act is the Export Guarantees Act, 1949. That Act established the limits within which the Department was authorised to accept liabilities, whether through its insurance operations or as the instrument for operating the Government-to-Government loans for the purchase of British goods or services which Her Majesty's Government make from time to time. These limits have been progressively increased by a succession of amending Acts, of which the last was the Export Guarantees Act, 1961.

In the business of insurance, of course, incurring liabilities does not necessarily mean, and I think we can agree should not mean, suffering trading losses. Although this small but important Department has steadily increased its liabilities it has enjoyed a most satisfactory trading experience, so that its current operations are effected against an appreciable reserve resulting from past business. The normal operations of the Department are conducted either under Section 1 or under Section 2 of the Act of 1949, for each of which there is a separate limit of liabilities. Business under Section 1 is commonly referred to as "commercial" business, since it is conducted only after consultation with the Department's Advisory Council and, in practice, with their approval. They base their advise on each insurance proposal as a commercial proposition. Perhaps I might remind your Lordships that two members of your Lordships' House, my noble friends Lord Catto and Lord Melchett, are members of that Council, to whose wise guidance we all owe a great deal.

Business under Section 2 of the Act is undertaken without consultation with the Advisory Council, either because it is business which would not be undertaken on a commercial basis or because it comprises economic assistance to an overseas country. It is commonly known as "national interest business", because in either case Her Majesty's Government have to be satisfied that it is in the national interest to do it. Under each of these sections the Department's commitments are now pressing on the statutory limit. In the case of Section 1, they are pressing hard. The Bill now before the House provides in Clause 1, for the current limit of £1,000 million to be increased to £1,500 million. The present position is that at the end of December last—the latest date for which figures are available—the Department's actual liabilities amounted to £918.7 million. In addition, the Department was pledged to give certain cover if the exporters in question called on it to do so: and these potential commitments amounted to a further £96.3 million. Although, strictly speaking, only actual liabilities count against the limit, we cannot altogether ignore the potential commitments; and your Lordships will realise that these figures leave little room for further offers.

It is four and a half years since the Government came to Parliament and asked for this limit to be raised. The limit under this section has already been raised by amending Acts in 1952 and 1959. The limit in this Bill is based on the best estimates that can be made of the growth of the Department's liabilities in the next five years. If the Department's business grows faster in future than it is doing at present, it may well be necessary to raise the matter in Parliament again before five years have passed. If it should prove necessary to come to Parliament for further authority within a shorter period, it will be only because a greater use of the Department's facilities is being made than we have anticipated; and that would hardly be a matter for either criticism or misgivings. Liabilities under this section have increased by £111 million in the last twelve months. The Department's estimate of the five-year growth is based on an annual increase in these liabilities of some £100 million, so that we are proposing an increase in the limit from £1,000 million to £1,500 million.

Perhaps I may now turn to the limit under Section 2 of the Act of 1949, which was last raised in 1961. Here the Bill provides for an increase in the permitted limit of liabilities accepted from £800 million to £1,300 million. Again we are basing this on estimates of five years' growth namely, at a rate of roughly £100 million each year. The manner in which the Department has arrived at this figure is rather more complicated, since Section 2 provides for several distinct classes of operation. First, there are the Government-to-Government loans, known generally as "Section 3 loans", since Section 3 of the Act of 1949 provides the general powers under which the loans are made. They are, however, required to be accommodated within the limit placed on the liabilities which the Department can assume under Section 2 of the main Act.

Forecasting the future of this form of aid is decidedly speculative, since it depends not only on Britain's future capacity to provide aid, but on the future policy of Her Majesty's Government as to the form such aid should take. At the moment these loans make up roughly one-quarter of our total aid programme. Making a number of broad assumptions, Her Majesty's Government have decided that it is reasonable to allow in this Bill for further loans at a rate of something like £50 million a year. In the nature of the case this estimate cannot be more than an approximate estimate and should not be taken to indicate any new policy decision.

Secondly, there are the Financial Guarantees for the financing of large projects. These guarantees were introduced just under three years ago. So far, ten nave been given, accounting for over £80 million of firm liabilities. There are commitments, however, to give a further £290 million of these guarantees, if called on to do so, in respect of projects, that are, so to speak, in the pipeline; and further projects are being approved for this form of cover all the time. The scale on which these guarantees will be issued in the future is also difficult to estimate, but it has seemed reasonable, in the light of our present experience, to put down another round figure of £50 million a year.

Repayments of both the Section 3 loans and the loans covered by Financial Guarantees are on such terms that we cannot expect that much of our existing liabilities will expire during the next five years. We have therefore provided for an annual net increase in our liabilities of some £100 million a year. This should cover other less substantial classes of business conducted under Section 2 of the Act, notably cover on markets not regarded by the Advisory Council as "commercial" risks, and such forms of experimental or non-commercial cover as the small exporter policies introduced in April, 1961.

The remaining provision of this Bill is to extend the facilities of the Department to the Channel Islands and the Isle of Man. The authorities in these islands welcome this change, which should encourage exports from these areas; and any increase which results from it will benefit the economy of the United Kingdom. The change means, however, that our United Kingdom policy-holders will no longer be able to cover with the Exports Credits Guarantee Department their sales to these islands; but such insured business is small and the facilities of the commercial insurance market are available to cover it.

To sum up, my Lords, the main purpose of this Bill is to ensure that for several years to come—we estimate about five—this Department of the Government will encounter no constitutional impediment in carrying out its vital work of helping and encouraging the British exporter. In recent years the Department has expanded its business and its coverage of the export trade very considerably indeed. From time to time, as one would expect, one hears complaints that E.C.G.D. does not do enough. I can assure your Lordships that Ministers responsible for the Department will always be ready to look at any such case which is put to them. On the other hand, the Department gets complaints from foreign credit insurers that it does a good deal too much. But, of course, the cases which get the publicity in this country are those where the British exporter is dissatisfied. When one considers the vast scale of this business—£1,000 million worth of exports were insured in 1963—it is remarkable how few are the complaints. It is at least reassuring that a substantially higher proportion of British exporters are credit insured than those of any of our competitors.

The amount of insurance written is constantly increasing. At present there are over 6,000 exporters holding E.C.G.D. comprehensive policies, and over 500 specific guarantees on individual transactions. The kind of cover given is continually being widened. The rates of premium have been reduced several times; for example, the rates for comprehensive guarantees insured by E.C.G.D. have fallen in the past nine years from 11s. 8d. per £100 to 6s. 5d. But there is still scope for growth, for at present the proportion of exports insured by E.C.G.D. is just over 25 per cent. That is as good an indication as any that the E.C.G.D. has not only been a commercial success but is serving our exporters well. I beg to move that this Bill be now read a second time.

Moved, That the Bill be now read 2a.—(Lord Drumalbyn.)

3.12 p.m.


My Lords, I thank the noble Lord for his lucid and careful explanation of this Bill, with every word of which I agree. I agree, too, that the Bill is neither difficult nor controversial, but it certainly is important. On this side of your Lordships' House we warmly welcome the Bill for a variety of reasons, all of them good. The first is that in effect it acknowledges the remarkable success of a measure initiated by the Labour Government in 1949, and it is a tribute to an important form of State insurance. As the noble Lord has indicated, the guarantee of liabilities under Clause 1 has grown from some £500 million in 1949 to £1,500 million under this Bill. Under Clause 2 the national interest guarantees have grown from a single million to £1,300 million. Another reason is that the Department made a profit of some £7 million in its last financial year—and this, in the main, on risks which private insurance would not undertake. Last year guaranteed exports totalled no less than £1,000 million and gave indispensable assistance to 25 per cent. of our total exports—a percentage which, in my view, will continue to increase.

One other advantage is that this Bill includes among its most fervent supporters some of the largest private enterprise firms in the country. Indeed, this is one form of State enterprise which even the most generous contributors to Aims of Industry do not wish to denationalise. In fact, they would join with me and with the noble Lord in acknowledging the skill, care, foresight and understanding with which the officers of the Export Credits Guarantee Department discharge their complex tasks to the benefit of British industry and the nation. The noble Lord said that the Ministers and the Department are always most anxious to hear suggestions for improvement; and indeed the history of the Department is a long history of considering suggestions and adopting a good many of them for the general betterment of our exports.

I feel that the most useful thing I can do is to give some idea of some of the improvements which should be made. This Department is an essential and established part of our economy. But although it has progressively extended the range of its facilities, it never quite manages to keep abreast of the credit practice of at least some of our principal world competitors. Indeed, I do not think even now it can be claimed that our credit practice permits British exporters to allow credit terms as good as any available in the world. I submit that that should be our objective if British exporters are not to be unnecessarily, and sometimes unfairly, handicapped in their efforts to secure an increased share of world trade. I feel, therefore, that some criticisms which are made by responsible people should be aired.

They fall roughly under three heads. First—the most commonly heard—the arrangements are not sufficiently flexible; second, they are not broad enough in their scope, and, third, they are not sufficiently forward-looking. To a considerable extent the lack of flexibility is inherent in this type of Treasury control. It is true, despite what the noble Lord has said, that valuable export orders have been lost, although the price, delivery and quality were right, just because exporters have been unable to match the credit terms. I could quote cases where, after considerable negotiation, the Department has been able to agree credit terms required, and then it has been too late; the business has gone elsewhere to another country. In some countries, notably Japan, the commercial representative has extraordinarily wide powers. He appears to be in a position to negotiate virtually as a representative of his Government. For example, because of this we missed the order for the steel rolling mill at Dargapur. On that occasion had the British consortium known earlier how far they could go and exactly where they stood, we should have got the order.

In regard to the complaints about the need for a broader scope, the Department's activities should be broadened by increasing their ability to help the smaller exporters and by greater assistance with progress payments. The Federation of British Industries have recently pointed out that the minimum limit on medium-term business should be less rigid. They feel that the present minimum limit of £100,000 should be lowered in suitable cases. There is also considerable difficulty with large-scale exports of heavy engineering plant. The larger, good companies have no difficulty in getting credit from their banks to finance exports under normal E.C.G.D. procedure; but borrowing against the security of a standard policy means that such borrowing is with recourse to the company and, naturally, is aggregated with their overdraft accounts as part of the total facility afforded. To the extent, therefore, that companies have to rely on such finance, it can, and does, restrict exports.

The position is obviously alleviated when an E.C.G.D. banker's guarantee is available. But it is becoming increasingly difficult to finance an expanding business, and this would be the case with some exports, even when progress payments were available. This is when there is a very heavy volume of work in progress, because of the long manufacturing period prior to shipment. It is therefore important that better methods should be found, which would permit manufacturers to obtain finance from their bankers to cover manufacture without recourse against medium-term policies, before the date of acceptance of the goods by the customer. This would, in effect, provide manufacturers with the equivalent of progress payments during manufacture.

At present the Export Credits Guarantee Department requiries acceptance certificates given by the customer at the time of shipment. This is absurd in the case of an order for power station equipment, because this is not normally accepted by the customer until the end of the maintenance period, which is, usually a year after the plant has been commissioned. So in such circumstances it is obvious that an adjustment must be made to meet the difficulty. The present system has, in fact, never been really applicable to very large contracts for capital equipment. The length of credit which the E.C.G.D. will underwrite is usually too short to meet the customer's requirements, and the mechanics imposed by the Department are such that the supplier cannot obtain progress payments which are frequently essential, in the case of the very large contracts, if the finance that is necessary for manufacture is to be available. Obviously, an adjustment must be made to meet this difficulty.

Another useful facility would be the provision of complete coverage for international consortium contracts. At present the E.C.G.D., within its terms of reference, can cover only the British content of a contract of that kind. There are places where it would be of advantage, politically, if the tender could be issued, for example, by a non-committed country. Given the right international consortium, we could in such cases obtain a share of the contract which would not otherwise be available to us. This might well be achieved if the E.C.G.D. and other foreign credit institutions could co-operate in providing complete cover. My Lords, I am bound to say here that it may well be that the obstacle is not our own E.C.G.D., but the foreign credit institutions. But it is a matter which should, I think, be vigorously pursued.

With regard to the feeling that we should be more forward-looking, an example of this was given by my right honourable friend Mr. Douglas Jay during the Second Reading of the Bill in another place. He then mentioned the decision of the Pakistan Government to set up a single, large-scale lorry plant, which was to have the monopoly in Pakistan for 30 years ahead. The Leyland Company put forward a complete scheme by which they would construct and manage this factory, and the Pakistan Government was anxious to accept their proposal in preference to that of the Americans. But the American aid and credit authorities were willing to lend foreign exchange, as we were, not merely for all the initial equipment of the factory, but for all the spares and other necessary facilities for a number of years afterwards. Our own Department was unable to permit Leyland's to match this offer, so we lost not only this order for this important factory, but also the lorry market for a whole nation of 100 million people for at least 30 years, and it may well be permanently.

This has happened with a number of large-scale projects in different industries, when we have been in competition with the United States. Obviously, if we are to continue to lag behind the Americans and the Japanese in this way, we are hound to experience a disastrous decline, both in our markets and in our influence in underdeveloped countries, and it will be impossible to achieve or maintain the planned expansion of production to which we are committed. I do not think we have sufficiently absorbed the lesson that trade follows aid. Perhaps it is for this reason that during the last six or seven years the proportion of aid to India from the U.S.A. and Germany has gone up, while ours has gone down. Our position in relation to South America is even worse. I understand that only some £3,800,000 is currently allocated for economic assistance to South America. It is, of course, right to urge our manufacturers to increase exports by hard work and hard selling, but in some cases our efforts are fruitless unless we are prepared to invest; and in other countries we are wasting our time, unless the credit facilities we offer are related to the need and capacity of the buying country.

I feel that the time has come—indeed, it may well be overdue—when we should consider another State credit agency as an alternative or supplement to the E.C.G.D. My right honourable friend Mr. Douglas Jay referred to the report on export credits recently published by the steel plant industry, and to their suggestion of a State guarantee corporation, independent of direct departmental control. Such a proposal has a number of attractions, because a corporation of this kind would be able to consider requests for financial assistance from every point of view. Of necessity, the outlook of the E.C.G.D. has to be actuarial. Very often there is not enough time for prolonged negotiations with the Department which are sometimes necessary, particularly when we are competing with countries who are offering unorthodox terms. The decision whether export credit facilities should be made available ought not to be based solely on financial grounds. The overall export needs of the country must be considered. The importance and condition of the industry asking for credit facilities, its location and employment position, are all major factors which should be taken into account. At present, with several Government Departments concerned, it is inevitable that decisions on unusual cases are taken slowly, and often too late. There would be great advantages in having a corporation, Government-sponsored, with a Government-sponsored board of directors, with a small staff and with a remit to do everything possible to further export trade within the Government's general policy.

I hope that the Minister will be able to reply to some of these points, which I agree are not new—he may have heard them before. I hope that he will at least be able to assure us that these suggestions will be carefully considered. On this side of your Lordships' House we welcome this Bill, and acknowledge all that has been, and is being, done by the Department. But, my Lords, if our manufacturers are to win for us the exports we so badly need, there must be urgent improvements in the facilities available to them, and we must not send them into the markets of the world handicapped against other countries.

3.29 p.m.


My Lords, I naturally, like all noble Lords on these Benches, welcome this Bill; but I am not quite sure that I can join my noble friend the Minister in congratulating ourselves on its existence, because I regard its very existence as a sign of weakness and collapse in world trade. After all, it ought not to be necessary to have any such Bill; but regrettably it is. In the manufacturing countries of the world we see creeping inflation. The price of their manufactures Roes ever higher, with the aid of their trade unions who every year demand higher wages, and their costs go up every year. That is not reflected in the materials provided by the raw material producers in the world. Occasionally their prices have a brief rise, but only to bring fresh supplies into the market, and there is then a further fall to lower levels. In fact, one might say there is a progressive pauperisation of the raw material suppliers of the world, and an increasing enrichment of the manufacturing countries. That is the reason for this Bill. The manufacturing countries cannot get rid of their goods except on the type of terms which are available under this Bill.

Moreover, I am afraid the process is going to increase. We are seeing the handing over of the various countries in Africa to very inexperienced Governments. There are great population increases, and we are seeing the splitting up of land in order to provide food for that increasing population—and, as we know, the breaking up of estates always means the lowering of agricultural exports. Again, the symptoms are of the increasing extravagance of Governments. The Scottish accountants have walked out, and now the era of extravagance comes in. We are going to see exactly the same things that have happened in the Western hemisphere happen in Africa. There, we know that in many countries it is almost impossible to trade except by making loans, which in turn can be paid back only by making further loans in the future. In these circumstances, one asks oneself: do we want to stay in the business at all? Is the business worth having? The answer from the commercial point of view is, probably, "No", but from the point of view of our position in the world the answer is, "Yes, we have just got to do it".

But if that is the situation—and I do not think I am exaggerating it—are the limits in this Bill enough, or have I misunderstood them? I understood my noble friend to say that we were expecting £50 million a year credit on purely trading account and £50 million a year increase on purely Government aid. I should have thought that the second of those was probably a great deal lower than we could hope to expect if we are to do the duty that we have set before us, which is to support financially all these new countries that I have mentioned.